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Pregnancy is Not Too Early to Start Saving for College

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baby 529 save for college

Hahaha, I’m going to cost daddy $200,000 when it’s time for college.

Author Bio: 

The Money for College Project was started with one goal in mind: to help people find better ways to pay for college. MfCP is published by DJ, who works in student financial services at a large (19,000+) research university. At MfCP you can find easy to understand explanations of financial aid awards, creative ways to make money for college students and working adults, and college savings strategies.

Pregnancy is Not Too Early to Start Saving for College


We all know that paying for college is expensive. In fact, outside of your home, if you make the decision to fund your children’s college tuition it will likely be the second largest expense you ever have.

Saving for your child’s future education is a lot like saving for retirement. You don’t know exactly how much their education will cost, so you calculate a rough estimate, and make a plan to reach that goal by the time they enter college.

Sounds easy right?

Wrong.

There are a million factors that could wildly fluctuate the cost of a college education. Public vs. private. In-state vs. out-of-state. Academic whiz vs. entrepreneurial independent. Socialite vs. introvert.

The good news however, is that there are concrete ways that you can begin early, harness the power of compound interest and a large time horizon, and secure a bright future for your child.

Nobody can predict the future; we can however, prepare for it.

529 College Savings Plans

There are two types of 529 college savings plans that parents can take advantage of. The College Savings Plan, and a Pre-Paid Tuition Plan.

The College Savings Plan allows parents to contribute money into a mutual fund which grows based on the fluctuations in the market. These plans are typically age based allocations, which means that they will become more conservative investments as the child gets closer to entering college, much like a target date retirement fund.

The College Savings Plan can be withdrawn to help cover eligible college expenses. This would include tuition and fees, room and board, books and supplies, transportation, and other college related personal expenses (including a laptop).

The College Savings Plan is an excellent choice if you do not know which college, or which state, your child will attend college in. It is very flexible, and it can generally be used to cover any expenses that a student has pertaining to their education. You also have the benefit of compound interest and potentially a large time horizon on your side. There are also tax benefits to investing in a 529 plan, which differ from state to state.

The Pre-Paid Tuition Plan allows you to purchase tuition credits at the current rate, to be used for tuition in the future. Some Pre-Paid Plans are offered directly from one school, to be used at only that one school, while others are administered by a state, and can be used for any school within that state.

The performance of your tuition credits is based on inflation. For example, if you buy 15 credits (typically one credit = one credit hour) in 2011, and tuition inflates 64% by 2029 when your child enters college, then the difference in the two prices of the credits will be your performance growth.

With a Pre-Paid Tuition Plan you will only receive the credits you pay for, and you must pay in full upon purchase. A typical college undergraduate education is between 120 and 150 credit hours. This is the amount of credits you should plan to buy to cover an entire education.

Only 11 states offer a Pre-Paid Tuition Plan, so it is important to check with your state treasurer to see if this option is available where you live.

Financial Aid

As a parent, you should encourage your child to find ways to pay for college themselves. Even if you are blessed enough to be able to cover the entire cost of tuition, it is still very beneficial for a student to take an active role in their education financing so they understand how the process works, and the extreme benefit they are receiving through their education.

The best way  for a parent and a student to participate in finding money for college is through financial aid.

There are many different sources of financial aid, and some are much more preferable than others.

Federal Financial Aid

The first step to applying for all sources of federal financial aid is to submit the Free Application for Federal Student Aid (FAFSA). This is your one stop shop for all federal financial aid.

Pell Grant: This is the largest federal grant, and it is based on financial need as determined by the FAFSA. Currently, the annual maximum is $5550.

FSEOG: This is a supplemental grant that is also based on financial need. The annual maximum is determined by the school, but it can be anywhere between $100 and $4000 per year.

Work-Study: This is basically a part-time job that you are placed in by the financial aid office. Typically this will be a flexible position, based somewhere on your campus. You will earn a paycheck based on your hours worked, and your rate of pay. It is important to note, that this award cannot be used to directly credit your college tuition, since you have to earn your salary based on your hours worked.

Stafford Student Loans: If all other sources of financial aid have failed, you can revert to taking out student loans. You may qualify for a subsidized Stafford Loan which currently has a 3.4% interest rate. You may also qualify for an unsubsidized Stafford Loan which carries a 6.8% interest rate. The payments on both of these loans are deferred until after your graduate.

Other Financial Aid

School Supported Scholarships: Your school will likely be able to offer numerous scholarships ranging from a few hundred dollars, to the entire cost of your tuition. You may receive a scholarship for academics, athletics, ROTC, entrepreneurial spirit, creativity, acting ability, artistic ability, or even a unique family heritage.

State Sponsored Scholarships: Many states offer scholarship programs that are funded by their lottery programs. In many states, these programs offer millions of dollars per year to eligible students.

Private Scholarships: These are the most numerous of any scholarship categories. You can search for these scholarships everywhere from your local Ruritan Club, to large corporations like Target, Wal-Mart, and GE. The company you work for may also sponsor scholarships for children of their employees. Your high school guidance counselor and local library are generally the best places to look for local private scholarships.

The Bottom Line

There are literally a million ways to pay for a college education. The list above gives you just a small taste of all the opportunities that exist in financial aid, and college savings plans.

The more time you are willing to put in, and the earlier you are willing to start, the easier you will find it to stomach paying the rising costs of college education.

You cannot control the costs. However in the end, if you prepare well enough, you will be able to give your child every opportunity that they will need to be successful and unlock their potential through a college education.

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{ 47 comments… add one }
  • Shaun @ Money Cactus February 22, 2012, 3:15 am

    It impact of time on money is amazing. Start as soon as you can, with whatever you can and grow from there. A solid education is a very powerful tool, why wouldn’t you want to give that to your child?

    • MoneyforCollegePro February 22, 2012, 8:54 am

      Shaun, you are right. Just like saving for retirement, the long time horizon of 18years (ish) is an excellent time frame to save for retirement. And you are also right that education is extremely powerful and IMO one of the best gifts we can pass along to our next generation!

      • retirebyforty February 22, 2012, 10:55 am

        We are not planning to leave much to our kid except for a good education. He’ll have to be a self made man.

    • retirebyforty February 22, 2012, 10:51 am

      We are saving the maximum amount that we can get state tax deduction for. The earlier we started, the better. The investment will have time to grow.

  • Niki February 22, 2012, 4:01 am

    We started saving early for our children but at one point that stopped, it was mostly because we developed bad spending habits, but we have since fixed both those situations.

    I know some states offer a “buy now go later” option. When I lived in Florida a friend of mine’s parents had paid for their sons’ educations well before they graduated through this program, I wish I knew more about it, but I don’t. Also, when I graduated from a high school in Florida they had the Florida’s Bright Futures program that depending on your GPA, SAT score and community service you could get 75%-100% of your tuition paid for at a state school. Florida has a lot of options too. Anyhow, I don’t know if that still exists that was almost 12 years ago for me and I don’t live in Florida anymore. But if it does it’s a good reason to move to Florida. 🙂

    • MoneyforCollegePro February 22, 2012, 8:56 am

      Hi Niki, I believe the “buy now go later” option you mention is the pre-paid tuition plan I mentioned in my article. It really is a great program and let’s you take advantage of today’s tuition rates to lock in credits for your child for their future. Just be careful, because if your child decided to go out of state, then those credits you purchased are suddenly worth a whole lot less! Still a great program though.

    • retirebyforty February 22, 2012, 10:53 am

      Did your investment pay off? We started last year and I think we are just a little ahead now.
      I think our state is also looking at some type of scholarship program for in state students.
      Florida might be a good destination. 🙂

      • MoneyforCollegePro February 22, 2012, 11:32 am

        Florida definitely has a great program. Georgia also has their HOPE scholarships which is pretty awesome.

  • Dollar D @ The Dollar Disciple February 22, 2012, 9:40 am

    Great post! We’re planning on having our first kid next year so i’ll definitely be doing more research in the coming months. My parents were able to afford my education and I definitely want to provide for my kids.

    • MoneyforCollegePro February 22, 2012, 9:58 am

      Thanks Dollar D! That is exciting on having your first child. It’s a big step, but one that is certainly rewarding. I’m right there with you in saving for my child’s education also, so I know what you are going for. My parents also provided that for me, and I look forward to providing it for my child one day. Although, I won’t complain if they get a free ride from scholarships…

  • MoneyCone February 22, 2012, 10:25 am

    The cost of education has outpaced even healthcare costs. The rate in my opinion is unsustainable.

    I think long term, this will get outsourced too. Sending your kids to distant lands where education is affordable.

    Either that or some drastic changes are brought about by some brave legislator.

    • MoneyforCollegePro February 22, 2012, 11:33 am

      Not sure how I feel about outsourcing education…

      However, I agree with you that there is a current bubble with education costs, and especially with student loans. It will burst in the next 10 years, and the fallout may be just as bad as the recent housing crash.

  • Christa February 22, 2012, 11:20 am

    I love how you tied in grants, loans and scholarships by pointing out that kids should know how the financing part works. It will help them appreciate their education more.

    • MoneyforCollegePro February 22, 2012, 11:34 am

      I’m a firm believer that it pays to educate your child first, and then let them take the lead in financing their education. I promise you that the staff at your child’s college will appreciate it too! Helicopter parents are no fun for anyone.

  • Philip February 22, 2012, 1:52 pm

    I agree. You can start early, even if you have to start small. We started our 529 plans even before our kids were born. We used our SSN to start the plans and then we switched it over to our kids when they showed up. I definitely don’t put college savings before my own retirement, but $25 a month isn’t going to hurt most families.

    • retirebyforty February 22, 2012, 10:03 pm

      That’s a great idea. I didn’t even think about that. We are aggressively adding to the 529 to take advantage of the tax deduction. It’s better off to save more while the kid is young so the investment will have time to compound. When I leave my day job, we won’t be able to save as much.

    • MoneyforCollegePro February 24, 2012, 2:07 am

      Phiilip, I think you have a great plan! Even Dave Ramsey advises to save for your own retirement before your child’s, but it does make sense to take advantage of compound interest.

  • Well Heeled Blog February 22, 2012, 5:07 pm

    I think you can even start saving for your kids’ education before they are born by transferring your 529 plan to the baby. The cost of education scares me, especially as my partner and I are both going to graduate school and we need to service those loans before we can start saving for kiddo.

    • retirebyforty February 22, 2012, 10:06 pm

      That’s a great idea. I am afraid of the high tuition also, but we only have one kid so at least we only have to deal with it once.

  • Julie @ Freedom 48 February 22, 2012, 5:42 pm

    People often think they have LOTS of time to save… since post secondary education is many many years away. Sadly – time flies by and you’re there before you know it. The earlier the better when it comes to savings… and the earlier you save means the less you’ll have to save overall!

    • retirebyforty February 22, 2012, 10:07 pm

      The earlier you start the better! I agree 100%. It’s not just saving either. The 529 is an investment and it needs time to compound.

    • MoneyforCollegePro February 24, 2012, 2:08 am

      @Julie — We’re definitely saving what we can now, but you are exactly right, the time sure is fleeting!

  • UltimateSmartMoney February 22, 2012, 6:13 pm

    529 Plan is a great idea. Make sure you sign up with your state to get tax benefit. Long term investment in 529 plan should provide good benefit after 18 years.

    • retirebyforty February 22, 2012, 10:11 pm

      We contributed enough to get the maximum tax deduction last year. The tax benefit is not a huge amount, but I’d rather have it than not. 🙂

    • MoneyforCollegePro February 24, 2012, 2:08 am

      I wish our state plan had better investment options, but overall it’s great.

  • krantcents February 22, 2012, 6:27 pm

    You definitely do not want money to stop your kids from being all they can be. Start early and add to it as your salary increases.

    • retirebyforty February 22, 2012, 10:13 pm

      Good point KC.

    • MoneyforCollegePro February 24, 2012, 2:09 am

      Great point! Avoid lifestyle inflation and add that money to your own savings and your child’s education savings over time and you will reap huge dividends down the road.

  • Shilpan February 22, 2012, 7:09 pm

    529 is by far the best plan. It can be used in any state regardless of which state you selected to invest. Also, attending community college for few years before transferring to a well known university can save bundle.

    • retirebyforty February 22, 2012, 10:16 pm

      I’m undecided about community college. I know you can save a bundle, but I met some of my best friends in the freshman dorm. If we can afford it, I would probably go with a 4 years college. If we are short, then community college is a good option.

      • Shilpan February 23, 2012, 8:52 pm

        I saved in 529 Georgia plan. I am using it for my daughters attending Berkeley and NYU. So, that plan really works well.

        • retirebyforty February 24, 2012, 1:39 pm

          That’s great news! Hopefully we can do the same for our little guy.

      • Katie Rose September 26, 2014, 7:29 am

        I’ve met some of my best friends at community college. The main campus even has a residency hall. Most modern community colleges have excellent social opportunities on campus, like intramural sports and clubs. Another plus is that you get to meet people from all walks of life, while a university may only have a handful of nontraditional students that you might not see very often. The local university has a dual-enrollment program for courses not offered at the college, plus students can be apart of campus life (football Saturdays!!) while taking most of their credits at half the cost. So that’s something to look at if it’s available in the area, particularly if your student qualifies for financial aid. My grants cover the entire tuition at community college, but not for university.

    • MoneyforCollegePro February 24, 2012, 2:10 am

      @Shilpan – I think attending a community college is one of the most underrated moves that a student could make. I would almost suggest that ANYONE who does not have a full-ride scholarship to a 4-year school begin their college experience at a community school.

  • SB @ One Cent At A Time February 22, 2012, 7:32 pm

    Florida state offers a college prepaid program, where we need to pay around $100 every month for a 4 year university tuition and registration fees. If I have a kid I would enroll right after the birth.

    • retirebyforty February 22, 2012, 10:17 pm

      $100 every month until the kid graduate from college? That’s a pretty good deal, but what if your kid wants to attend Harvard? 🙂

    • MoneyforCollegePro February 24, 2012, 2:11 am

      @Sb – I see a lot of the Florida Pre-Paids come through our office. It’s very popular and actually has one of the better conversion rates for paying out-of-state tuitions. It’s a great deal if you can get in on it.

  • YFS February 23, 2012, 12:26 pm

    Joe,

    I would add in IRA’s into the mix. You can take an early withdraw from a Traditional IRA to pay for your dependents education expenses. The early withdraw is also sans penalties. This hedges your bet tremendously! If your little one gets a scholarship and won’t require any tuition money you can forego the penalties associated with the other options for not using the money for education.

    • MoneyforCollegePro February 24, 2012, 2:12 am

      YFS – That is a good idea, but not one that I would follow. I like to keep my retirement investments completely separate from my child’s education funding. IMO, if you gein taking away funds from your retirement with the intention of replacing them, you enter into a slippery slope that is hard t recover from.

  • Ginger February 27, 2012, 12:24 pm

    In many ways, the best way to save for college is to set yourself up well. If you have cash flow to pay for college during your child’s college years that is as important, if not more, than saving during pregnancy. Paying off your debt is just as likely to help you afford to pay for college as saving directly for college.

    • retirebyforty February 27, 2012, 2:18 pm

      I agree, but isn’t it better to start saving now when the kid is young? That way the investment has time to compound.

  • Jenya February 27, 2012, 7:10 pm

    We have two boys and don’t save specifically for them for college. This doesn’t mean we won’t help them, or that we live outside our means, but I’m unimpressed with most 529 plans. Plus, I already spend quite a bit of time managing our retirement investments without another one thrown in the mix. For us, since we are military and don’t pay any state taxes, anyway, there isn’t an immediate benefit. Plus, we don’t really live in one state long enough for a prepaid plan to make sense.

    I look at it this way – we are still not quite maxing a second Roth, and are not financially independent yet. While you may be right that compounding only works if you start early, we compound all the money we save so I’m still not really sold on a specific “education” fund.

    Plus, there is the whole complication of them deciding not to attend college, or getting a scholarship, or whatever. I’m not saying this isn’t a good idea for anyone, but I’m just not sold on it. Plus, investing in stocks for my kids’ education worries me. I don’t have a problem doing it for retirement, because we have a wide variety of investment vehicles to draw from if there is a bad year(s), plus there should be a pension, but if it happens the year tuition is in the education account? We’ll be raiding our other accounts, anyway.

    • retirebyforty February 27, 2012, 9:19 pm

      I see your point of view. I don’t like the prepaid plan much either because we don’t know where the kid will go. I like the 529 because we won’t have to pay tax on the withdrawal as long as we follow the rules.
      I agree that you should max out on the Roth IRA before contributing to the 529.
      Generally, the 529 plans recommend rebalancing to more bonds as the kids get closer to college. I think that should help us avoid the down market years. Thanks for your comment!

  • Jenya February 27, 2012, 7:12 pm

    Okay, that last sentence should have said “the year tuition is DUE” – hope that makes more sense!

  • Katie Rose September 26, 2014, 7:20 am

    Eh, my parents saved for college but it’s unrealistic to expect parents to be able, or willing for that matter, to pay for their child’s education. Like the cost of living, the cost of tuition per credit is always on the rise. What my parents had saved could maybe only cover half the overall tuition. They had to take out student loans for one term that took over a year to pay back. I flunked my first year of college, dropped out, and got married. Now I’m pregnant and back in school thanks to need-based financial aid grants. I’ve made the Dean’s List every term with high honors and currently have a 3.66 cumulative gpa (soon to be 3.8 now that I’m done with math/science core requirements and getting into what I excel at.) I’ll be transferring from the community college to the local university honors college on academia scholarships offered from the state. I may be “living off the system” from taxes that halve me and my husband’s paychecks, but I’m no longer taking advantage of my parents’ hard earned money. I’m proud that they will be able to retire years earlier because of it, and I think that’s a goal all American students should strive for. It’s amazing that FAFSA expects parents to pay for NOT ONLY the outrageous salaries of career politicians but also an education that can, in the long run, cost more than owning a house. More often than not parents are taking out student or personal loans because their savings do not cover the tuition, even if the family is frugal and spends well below their means.[/rant]

    There is the issue of choosing a major as well. If the student is entirely dependent on their parents then it’s likely (this is a broad stroke and a generalization, I know) that they will choose something more “practical” due to financial pressure, rather than pursuing what they enjoy and are actually good at. I’m majoring in Liberal Studies, minoring in writing and art history, undergrad and will be pursuing a master’s of fine arts in creative writing for grad school. I probably would not have done so on their dime, to say the least.

    I’ve seen hoards of over-bearing parents at fall term orientation, every year, participating in discussions and taking notes while their widdle child fiddles with a cell phone. “What do you mean I can’t see my child’s grades online?! Their high school always shows them online now!” Well, that’s because we consider them an adult, sir/ma’am, and your student will need to fill out a form giving permission for you to call in about their grades. And I can see the parent give their child a meaningful look, not that it matters because they’re the ones filling out all the paperwork anyway.

    BUT (long story short) we are going save up for baby Amelia, probably following your advice and that of others wise with money matters (fortunately this includes my husband, who is excellent at curbing our spending.) Of course I want her to get a quality education and be able to pursue what she loves to do. But it’s so important to instill from a young age that higher education is not, under this system, a guaranteed privilege. Do well in school, apply for scholarships, get a job, don’t blow paychecks, and you’ll make it. I wish I’d realized that back in those stupid teenage years, hah, but it’s not up to my parents to fix past mistakes.

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